Question

The stockholders’ equity accounts of Carla Company have the following balances on December 31, 2020. Common stock, $10 par, 326,000 shares issued and outstanding $3,260,000 Paid-in capital in excess of par—common stock 1,110,000 Retained earnings 5,930,000 Shares of Carla Company stock are currently selling on the Midwest Stock Exchange at $36.

Prepare the appropriate journal entries for each of the following cases. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(a) A stock dividend of 6% is (1) declared and (2) issued. (b) A stock dividend of 100% is (1) declared and (2) issued. (c) A 2-for-1 stock split is (1) declared and (2) issued.

Answer 1

When a stock dividend is declared the total value of the firm remains the same. In much simpler terms it is more like transferring money from your one pocket to another pocket that means there is no increase or decrease in the value but only the account changes.
Journal Entries for Small Stock Dividend and Large Stock Dividend will be accounted differently. If Stock Dividend issued is less than 25% of outstanding shares then it is small stock Dividends otherwise large stock dividends.
In Case of Small Stock Dividends the market Value of shares is transferred from Retained Earnings to Paid in Capital and in Case of Large stock Dividends the Par Value of shares is transferred from Retained Earnings.

a) A stock Dividend of 6% is (1) Declared
Particulars	Debit	Credit
Retained Earnings Dr (326,000 * 6%) * 36	$704,160
To Common Stock Dividend Distributable (19560 shs * 10)		$195,600
To Paid in Capital in excess of Par		$508,560
(On Declaration market value of shares are transferred to paid in capital)
a) A stock Dividend of 6% is (2) Issued
Common Stock Dividend Distributable Dr	$195,600
To Common Stock Account		$195,600
(On issue small stock dividend will move from common stock Dividend distributable to common stock capital account)
b) A stock Dividend of 100%(1) Declared
Retained Earnings Dr (326,000 * 10)	$3,260,000
To Common Stock Dividend Distributable		$3,260,000
(Large Stock Dividend at par value)
b) A stock Dividend of 100%(1) Issued
Common Stock Dividend Distributable Dr	$3,260,000
To Common Stock Account		$3,260,000
(on issue it will be transferred to common Stock Account)
c) A 2-for-1 stock split is (1) declared and (2) issued
No Entry
(This is because it is an event where the par value becomes $5 and the number of shares outstanding increases to 652,000 shares but overall there is no impact i.e. 5*652000 = $3,260,000)